It Turns Out That Saving CHIP Would Actually Save the Government $6 Billion

The Children’s Health Insurance Program, which provides coverage to some 9 million lower-income kids, is in danger of exhausting its funding in some states as soon as this month, because Congress can’t agree on how to pay for its reauthorization.

It turns out, however, that lawmakers might be able to extend CHIP for free. In fact, doing so could even save the government some money.

Last week, the Congressional Budget Office estimated that reauthorizing CHIP for 5 years would cost the federal government a mere $800 million. That’s quite cheap in the scheme of all federal spending, of course. But today, the CBO sent Capitol Hill staffers an email stating that extending the program for 10 years would actually save $6 billion over the decade, which an aide forwarded to me this afternoon (on the condition of anonymity, which was granted).1

How is it possible that extending a program for 10 years is cheaper than extending it for 5, you ask? The CBO’s note isn’t very detailed (I’ve emailed the office asking for comment, but haven’t heard back). But according to the aide, the answer likely has to do with Obamacare. If CHIP lapses, many more children will almost certainly be enrolled in health coverage through the Affordable Care Act’s insurance exchanges, where their plans will be subsidized by the federal government. And over the long term, it may actually be less expensive for Washington to cover those kids via CHIP than to pay for their private insurance. (Update, 8:58 PM): According to another Congressional staffer I spoke with, the 10-year extension also saves money because it more generously funds the program during the second half of the decade, which results in more families dropping expensive-to-subsidize exchange coverage in favor of CHIP.

If this all sounds familiar, that may be because the CBO recently lowered its estimate of what it would cost to extend CHIP for just five years for reasons that also had to do with Obamacare. Originally, the office believed that reauthorizing CHIP would add $8.2 billion to the deficit. But it dropped that forecast to $800 million after Republicans repealed the ACA’s individual mandate in order to fund their tax plan. The mandate’s demise is expected to drive up premiums on the exchanges, making it relatively more efficient to cover kids through CHIP.

In any event, it appears that Congress can now reduce the deficit by guaranteeing millions of children health coverage for 10 years instead of five. What more motivation do they need to pass a bill?